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1. Assume you purchased 1,000 shares of Motorola on January 2, 2001 (a Tuesday) at $100...

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Finance

1. Assume you purchased 1,000 shares of Motorola on January 2,2001 (a Tuesday) at $100 per share. Your broker charged acommission of 1% of the value of the trade.

a. How much will you owe, and when will you owe it?

b. Assume you purchased the stock on margin. Your brokerrequired a 50% initial margin and maintenance margin of 25%. Howmuch cash would you have to come up with initially?

c. At what price would you face a margin call?

d. Using the information provided in the prior questions, assumethe price of Motorola rises from 100 to 125, compute the returnassuming you purchased the stock for cash and assuming youpurchased the stock on margin. What have you not considered whencomputing these returns?

Answer & Explanation Solved by verified expert
3.7 Ratings (546 Votes)
a Purchase Volume 1000 shares and Price per Share 100 Broker Commission 1 of Purchase Value 001 x 1000 x 100 1000 The buyer will owe the broker hisher commission once the trade is settled    See Answer
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Transcribed Image Text

1. Assume you purchased 1,000 shares of Motorola on January 2,2001 (a Tuesday) at $100 per share. Your broker charged acommission of 1% of the value of the trade.a. How much will you owe, and when will you owe it?b. Assume you purchased the stock on margin. Your brokerrequired a 50% initial margin and maintenance margin of 25%. Howmuch cash would you have to come up with initially?c. At what price would you face a margin call?d. Using the information provided in the prior questions, assumethe price of Motorola rises from 100 to 125, compute the returnassuming you purchased the stock for cash and assuming youpurchased the stock on margin. What have you not considered whencomputing these returns?

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